Would like an answer from sfe please! If someone drops out of a course in say year 3 of a four year course, perhaps having had an extra year's funding already, but it's on medical advice, if they have medical evidence, are they eligible for funding for a new course, as if the first course never happened?

Only if the medical evidence confirms that the student faced difficulties throughout the course, or the the conditions meant the student had to completely withdraw from the course as a whole, not just the one year.

If the difficulties were only faced in one year of the course, then this would not normally be sufficient to discount all previous years where there were no issues.